Skip 'fad' stocks. Own these old-timers instead

Investment fads come and go just about as fast as hucksters can sell them.

Think hedge funds. Real estate. Gold. “New economy” stocks. Each are always promoted as being the “next best thing” investors need to have, just as the hula hoop was the must-have toy in the 1950s.

But it turns out some of the only investments investors truly need over the long-haul are shares in some of the oldest and established U.S. companies, according to research from Ken Winans, market historian and investment manager at Winans Investments.

An investment in shares of some of America’s oldest 110 companies, many of which trace their history back to at least 1897, has handily beaten many of the trendiest investments in a variety of time periods. Winans created an equal-weighted index of these stocks, called the WILSI, to track the performance of this group of corporate “blue bloods.”

The index includes some of the oldest stocks including strong performers, including International Business Machines and General Electric, as well as stocks that have been poor performers like truck maker Navistar. Exxon Mobil, Johnson & Johnson, Goodyear Tire, American Express and Chevron are also included.

These old-timer investments have been champs over the past 10 years – easily beating more trendy investments. It’s an interesting time period since it includes a boom and bust cycle for many of the major asset classes. The WILSI turned in a 134% return, including dividends, over the past ten years handily topping the 53% gain of emerging markets, 59% gain of hedge funds and 29% of housing with 0% leverage. The only investment to top these stocks during that time period was gold, rising 187%.

Some might say that’s an unfair time frame, after all, real estate suffered a brutal setback during the financial crisis. Gold gets an unfair advantage in the past ten years due to a Fed-scare induced rally. But the story of the old-school stocks ruling rings even more true longer term. The WILSI index has returned 553% over the past twenty years, beating the 427% gain of hedge funds, 206% gain of gold and 114% of unleveraged real estate.

And shorter term, the old-school stocks still come out at top. The WILSI has returned 121% over the past five years, trouncing the 55% gain of emerging markets, 59% gain of hedge funds, 39% gain of gold and 18% return of unleveraged real estate. If there’s any investment “fad” these classic companies have trouble keeping up with it is technology stocks. Over the past 10 years, the tech-heavy Nasdaq has risen 108% on price only and the Dow Jones Internet Stock index (price only) has risen 432%. Both of those returns beat the WILSI, even including dividends, with its 134% total return.

But don’t think that’s an excuse to jump into tech stocks. For one thing, the Dow Jones Internet Stock index removes dot-coms and tech stocks had died back when the bubble burst. Companies in the WILSI, on the other hand, have been listed continuously for decades. Just one stock in the WILSI no longer trades, Eastman Kodak, and its value is locked into the index to make historical analyst possible. To be included, the stock has to have been founded no later than 1951.

Also, tech fads might have powerful bull runs that make the pain worthwhile for those few investors willing to hang on. But getting to those returns requires investors to endure intense periods of pain and underperformance. Investors who piled into the Nasdaq in 1999, for instance, are up just 2.6% since then on a price-only basis. They’ve missed out on a 77.6% gain by the old-school companies just on price alone and a 179.5% gain including reinvested dividends.